Jack Lamey and his wife, Donna DiBlase, are happily settled in a townhouse they bought last September in Huntington Beach with a down payment and closing costs totaling $7,500. And they're thankful it's a three-bedroom place, because they're expecting their first child.
Cathy Fields had more than the $8,000 she needed to buy a condo in Culver City last March, but she used the extra cash to make improvements and even invested some of it.
Mark Smith recently sold a Huntington Beach townhouse he bought last year with $5,000 cash and made a $30,000 profit. Dianne McKinnon had an almost identical experience when she sold a Garden Grove townhouse she bought two years ago with less than $7,000.
These are more than just Southern California real estate success stories. They're examples of home buyers with limited resources who used Federal Housing Administration (FHA) loans to buy property with 5% down.
Most FHA mortgages are 30-year, fixed-rate loans that carry the same interest rates as conventional loans and can be used to buy new or existing homes. They are insured by the FHA program and funded by the same institutions that offer conventional loans. But some people think that because the program is connected to the U.S. Department of Housing and Urban Development (HUD) that FHA loans are available only for low-income families.
Here in California, where even many in the middle class can't manage to save enough for the down payment for a conventional loan that requires 10% or 20% down, FHA financing may allow home shoppers, especially those seeking a townhome or condo in a lower-price area, a way to break into the market.
Because the FHA limit for a 5% down payment loan is $101,250 in California, FHA loans are mainly used for the purchase of condos and townhouses and some single-family homes in such regions as the Riverside-San Bernardino area, according to the California Assn. of Realtors.
In that area, CAR says the median price of a single-family home is $124,000, compared to the Los Angeles median of $224,000.
Bob De Monte, regional administrator for the FHA, acknowledges that the FHA's Santa Ana office, which handles the San Bernardino-Riverside business, "continues to be the most productive" in the state. Last year, the Santa Ana office handled 28,804 FHA loans for single-family homes, while the Los Angeles office processed only 18,324.
A total of 86,569 FHA single-family home loans were issued in California last year, but that represents only 9.3% of all single-family home loans issued in the state last year--half the national average.
"The maximum benefit with the FHA loans is found on homes that are priced well below the median price in California and are very much atypical homes," says Joel Singer, chief economist for CAR.
But with condos and townhouses, which sell for an average of $138,000 in California, the financing device is more useful.
Even home shoppers in the pricey areas of Orange County and Los Angeles' Westside make FHA loans work, and some use FHA loans not as a last-ditch effort, but an investment device.
Take Cathy Fields, 34, for example. She went FHA to buy a two-bedroom, one-bath condo in Culver City and had extra cash besides the $8,000 for the down payment and closing costs.
"Even though I could have gone conventional (ith 10% down), I wanted to take the extra money and invest it in something else and for improvements," said Fields, a student counselor, who is single. "I did not want to put all of my accessible cash into one property."
Last March, she paid $105,500 for the unit, and comparable ones are now selling for $130,000. "I think it was a pretty good investment," she said.
Mark Smith, who is also single, recently sold his first property, which he bought last year. The 26-year-old physician's consultant used $5,000 in cash and an FHA loan to buy a two-bedroom, one-bath Huntington Beach townhome for $94,500, and he made nearly a $30,000 profit when he sold it a year later for $128,750.
"I was getting crushed in taxes and had to do something," he explains his determination to find a way to buy his first property, even though he had a limited amount of cash available.
Wayne Burrows, a 27-year-old buyer for a food service distributor, and Stewart Hoke, a 39-year-old supervisor for the city of Culver City, teamed up to buy a two-bedroom, two-bath condo in Culver City last October for $104,000 with just $6,000 cash.
Now, they've found a house they like and are selling the condo, which is in escrow for $139,950.
They recall that they were ready to abandon trying to buy the condo because they didn't have 10% for a down payment for a conventional loan, but then their agent encouraged them to go FHA. They cut it close, but they got a start in the market.
Dianne McKinnon, a 37-year-old letter carrier, also went in with a friend to use an FHA loan to buy a two-bedroom, 1 3/4-bath townhome in Garden Grove two years ago for $93,000.